In their decision dated April 1, independent commissioners David Mead and Jane Sinclair refused consent for the proposal, mooted by developer John Guthrie, Arrowtown realtor Richard Newman, Banco Trustees Ltd and McCulloch Trustees 2004 Ltd.
Mr Newman yesterday said the decision would be appealed.
The applicant proposed a total of 12 residential building platforms on the 6.5ha site adjoining The Hills golf course, on McDonnell Rd, and opposite Arrowtown's urban growth boundary, adopted by the Queenstown Lakes District Council through plan change 29 in 2015.
The subdivision, in which lot sizes would range from 3845sqm to 5540sqm, was proposed to be constructed in three stages.
The proposal attracted 19 submissions, one of which was in support.
In refusing the application, commissioners found the development would result in a "noticeable and substantial change to the environment of the site", pastoral character would be reduced and rural amenity modified.
They accepted the site had "some ability to absorb development", but "not at the level proposed".
"We find that there will be more than minor adverse effects on pastoral character; visual and rural amenity as experienced along McDonnell Rd, as well as from public viewing areas to the east, arising from the form and density of development, as well as cumulative effects.
"Furthermore, these adverse effects have not been adequately avoided, remedied or mitigated by way of planting or placement of building platforms.
"Design controls are of assistance, but will not address fundamental changes to the landscape arising from the lots and proposed buildings."
The commissioners found the proposal was also contrary to relevant objectives and policies of the operative and proposed district plans.
They considered how much weight should be given to stage two of the proposed plan, which recommended the area be zoned "Wakatipu Basin Lifestyle Precinct", which provided for an average lot size of 1ha.
The applicant's proposal was "out of step" with that emerging direction, the decision said.
"We do not agree with assertions from the applicant that the panel's recommendations mean that a more intensive development of the site than that proposed via the lifestyle precinct zoning is appropriate.
"This is taking matters a step too far."
Submitters contended the proposal equated to a form of urban development and pointed to the Arrowtown urban boundary "and the fact that this boundary is not moving".
"If not full urban, then the development was certainly a major step towards it ... over time, urban creep would be likely."
The applicant's view, however, was that they were "clearly on the rural side of the urban-rural continuum and that, if anything, the development would help to reinforce the urban boundary".
